Eric's Blog

The US has the biggest economy but it can not make the rules any longer.Between 1950 and 1990, the US economy made the economic rules for the free world. In the 1950`s the US Marshall Plan helped Europe rebuild from World War 2. At the same time, the US helped Japan build a new government and a new economy. If the US wanted something to happen, the US could make it happen.

Today, the US is still the world’s biggest economy. The US economy is 2.5 times larger than Japan, 6 times larger than Germany and 8 times larger than China. Two-thirds of all foreign exchange held by other world governments is in US dollars. The US dollar is still the standard for all other currencies.

What is different is that the US is no longer the ONLY powerful economy. Japan, Europe, China, India and Brazil all have very strong economies. These countries do not depend on the US like they once did. This has happened because the US has helped many of these countries to become strong. The US also helped create the G8, a group of the world’s largest economies, and the World Trade Organization (WTO). These groups make decisions that affect all world economies.

There are three major areas of the economy that the US can no longer control.

The first area is oil. In 1974, the US produced more oil than any other country. In 2004, the US bought 60% of its oil from other countries. In 1974, the US could control the price of oil. The US economy depends on oil and it no longer controls the price.

The second area is the US trade deficit. The US has bought more goods from other countries than it has sold to other countries. This has been true in 21 of the last 22 years. In 2004, the US trade deficit will be $664 billion. This means that other countries own a big part of the US economy–$2.4 TRILLION.

If other countries quit taking US dollars, then the US could not buy as much from other countries. This would hurt the US and world economies. The people in the US would buy less and companies in other countries would sell less to the US. The US dollar is worth much less today. In 1999, one EURO cost 98 cents US. Today, one EURO costs over $1.30. The value of the dollar has dropped almost 25% in 5 years.

The third area is trade. At one time, the US could control world trade by refusing to buy or refusing to sell products to other countries. Now there are many strong economies. If the US does not buy from them, they will sell to someone else. Now the US has to listen to the other countries and make changes needed to buy and sell from them.

To get control back, the US will have to buy fewer things and use less oil. This is will probably not happen. The world still needs a strong US economy. The US economy is the `engine` that makes other countries richer. The world will have to work together as economic leadership changes. If the large economies do not work together, they could all become very poor.]]